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Issue Papers - Insurance (Auto)
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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: Issue Papers - Insurance (Auto)
Box: P30
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
CONSIDERATION
1
CABINET ISSUE MEMO
1
DISCUSSION
2
DECISION
3
TO:
Governor Ronald Reagan
FROM:
Business & Transportation Agency
DATE:
May 8, 1972
SIGNED
BY:
Press
CONTROL NO. : BT 72-17
Secretary for Business To & Transporta
SUBJECT:
"No-Fault accident legislation" under consideration by the
Legislature.
ISSUE:
Should the Governor announce a position and initial criteria
for "Approved No-Fault" legislation to the Authors of all
bills now pending consideration, and authorize the Departments
of Consumer Affairs, Motor Vehicles and Insurance to support
and implement appropriate legislation?
CONCLUSION:
Yes! Through announcing an approved concept embodying the
best features of all bills, and through bipartisan co-authorship,
acceptable "no-fault" legislation will be achieved.
Through immediate public announcement of the Administration's
criteria, and by asking all the Authors, Republican and
Democrat, to jointly work out the details and incorporate
proposed amendments to meet these criteria, a pattern of
No-Fault legislation that truly meets the needs of the
consumer can be a reality.
FACTS & DISCUSSION:
as
After detailed examinations by Departments of Consumer Affairs,
Motor Vehicles, Insurance and the Legislative Section of
the Governor's Office, amendments, modifications and utilization
of all the best features are available for consideration at
this proposed conference.
Bipartisan authorship will receive immediate consideration
toward favorable legislation.
All no-fault bills are in hearings the second week of May
necessitating this immediate conference of Authors and the
Governor.
SUPPLEMENTAL INFORMATION
5-8-72
BT 72-7
No-Fault Automobile
Accident Reparations Refort
After presentation from Commissioner Barger on "modified No-Fault
insurance coverage plan", Cabinet and the Governor approved the
concept for the State of California. It was stipulated that the
Administration's approved legislation should provide:
First-party coverage no less than $5,000, and
A minimum threshold of $1,000, and
Provisions eliminating duplication of benefits in
individual and group accident and health benefits, and
Abolition of right to sue for first-party benefits if
$1,000 threshold is satisfied, and
A system of comparative negligence rather than contributory
negligence, and
The concept of fault should be preserved to provide for
subrogation.
Working toward evaluation of existing no-fault proposed legislation,
a task force consisting of: Chambers, Livingston, Kehoe, Barger,
Cozens and staffs have met several times with the charge to determine
which proposed legislation conforms to the concept and criteria set
forth in the Cabinet Issue.
CONCLUSION of this group is that the Song (SB 40) proposed legislation
(as amended through April 13) provided the best and most conforming
vehicle from which to recommend this Administration's position and
amendments. All of these proposed amendments are clarifying in
nature. These details are available in the Planning and Policy
Section of the Governor's Office.
Charted comparison of existing features and proposed amendments
is attached.
NB 384,
DU 104,
Automobile
(select no-
Fenton
Negedly
Moscone
Bradley
PROPOSED
fault
Liability
fault com-
(author)
(Fireman's
(Grate Bar)
(author)
RECOMMENDATIONS FOR
Categories
Insurance
mittee)
Fund)
SB 10, SONG
Basic
Optional:
Mandatory
Mandatory
Mandatory
Policy for
Mandatory
Mandatory
First-
Medical pay-
$5,000 poli-
$10,000 poli
unlimited
000 plus
poli-
policy of
Person
ments, unin-
cy, to cover
cy to cover
licy to co-
807 of ex-.
cy to cover
any amount
Benefits
sured motor-
medical,
medical,
ver medical,
cess to
medical, 60%
Retain $5,000 policy
to cover
ist, colli-
wages, funer-
wages, fun-
wages, funer
wages, funer-
with benefits as stated
000, per
medical, etc
sion, comp.,
al, survivors
eral, sur-
al, survivors
person, per
al, survivors
in bill, but allow 85%
per person,
etc.
other, per
vivors,
other, per
accident,
other. $5,000
of income from wages up
per accident
person, per
other, per
person, per
for medical.
for pedestri-
to $750 per month.
accident.
person, per
accident.
Other bene-
an, occupants
accident.
fits.
Compulsory
Required
plan or not
showing af-
Noncompul-
Compulsory
Compulsory
Compulsory
Noncompul-
Leave system noncompul-
Not speci-
ter accident
sory
sory, with changes in
sory
fied
assigned claims plan
Not Eligi-
Not
Uninsured
Uninsured
Commits fe-
Uninsured
No specifi-
Not speci-
ble for
Applicable
owner and
owner, nonre-
lony, under
owner, non-
cations
fied.
First-per-
spouse, non-
sident, Dri-
influence of
resident,
son benefits
resident,
ver malicious
licour/drugs
Driver mali-
Add provisions barring
Driver inten-
ly causing
recovery to those who
Driver inten-
cously caus-
tionally cau-
steal car, or are under
accident,
tionally cau-
ing accident
sing accident
influence of liquor/
committing
sing accident
committing
felony,
drugs, etc.
felony,
steals car.
stealing car
How Benefits
Optional,
Monthly; 10%
Monthly; 7%
Monthly.
Monthly, 10%
No specifi-
interest if
Retain provisions as
Monthly.
Are Paid
depending on
interest if
Primary to
interest if
cations.
contract
overdue.
stated in the bill, with
Secondary to
overdue.
all other
overdue.
Primary to
workmen's
Secondary to
possible addition of
Secondary to
plans.
Secondary to
all plans
workmen's
specific bar to double
comp. SSS.
workmen's
workmen's
comp., SSS.
recovery, including Kai-
comp., SSS.
comp., SSS.
ser-type service plans.
Limitations
None
Medical must
Medical, ex-
Medical must
Medical, ex-
Medical, ex-
No tort
on Tort
exceed $1000
cept x-rays
exceed $1500
cept x-rays
cept x-rays
action per-
to sue for
must exceed
to sue for
over $100,
must exceed
Retain tort limitations
mitted.
General Da-
$1000 to sue
General Da-
must exceed
$1000 to sue
as they are in the bill.
mages.
for General
mages.
$500 to sue
for General
Damages
for General
Damages
Damages
Subrogation
Optional
Permitted
Yes, without
No subroga-
Yes. Insur-
Specified
No subroga-
and
depending
when commer-
limitation
tion per-
ers must or-
when unin-
Amend the bill to permit
tion per-
Intercompany
on contract
cial vehicle
mitted
ganize bind-
sured motor-
subrogation and inter-
mitted.
Arbitration
involved, or
ing plan by
ist involved
company arbitration in
medical ex-
9/1/73.
as at-fault.
all situations.
ceeds tort
threshold
Assigned
No provi-
Fee paid to
Program run
Program run Program run
No provision
Fee is still to be col-
Not speci-
Claims
sion
DMV by unin-
by insurers,
by insurers.
by insurers,
except for
lected by DMV, but plan
fied.
sured; bene-
monitored by
monitored by
monitored by
mandatory
administered by insurers,
fits when in
Commissioner
Commissioner
Commissioner
uninsured
supervised by Commission-
jured by un-
motorist
er. Insurers may not ob-
insured.
coverage.
tain profit through plan.
Other Pro-
Not
Comparative
Insurer may
Mandatory
Commissioner
Comparative
Amend sections relating
Insured may
visions
Applicable
Negligence,
provide in-
no-fault pro
to study and
Negligence,
to increased first-party
sue own com-
Insured may
surance for
perty damage
recommend on
Insured may
coverage to make simple
pany to ob-
obtain more
General Da-
($5000), In-
mandatory
obtain more
and uniform ($5,000 in-
tain General
first-party
mages (first
sured may
liability
first-party
crements for aggregate,
Damages.
coverage.
party)
take deduct-
and property
coverage,
up to and $100
ibles. Com-
damage insur
with deduc-
increments up to $2,000
missioner
ance.
tibles.
for wage loss.
sets maximum
rates.
They couldn't sue anybody before."
NO
FAULT
Ryan is sufficiently convinced of this
to have set the 1972 bodily injury rates
on the basis of anticipating 20 percent
more claims. If this proves not to be
true, there could be some further sav-
ings in premiums to Massachusetts mo-
torists on bodily injury insurance.
Many states are now considering adopting some form of the so-called "no-
Savings from Cutting Fraud
fault" car insurance system, wherein, for modest claims resulting from an
auto accident, your own insurance company pays you, no matter who is at
However, insurance experts believe
fault.
the savings in 1972 will cover all the
There are so many pros and cons on this subject that TER feels its readers
fraud of former times, and that after
will want to know the facts for themselves.
1972, insurance rates will continue to
Massachusetts, which, according to its own Secretary of Public Safety, has
edge upward with inflation. The acci-
the worst drivers in the nation and more lawyers per capita than any other
dent-free motorist, accustomed to pre-
state, was the first state to adopt the no-fault plan. Accordingly, TER has
mium increases as regularly as inflation,
asked the Boston Globe's crack State House reporter, Ken Campbell, who
is happy about the general downward
has covered the no-fault story since its inception, to write a special article for
trend so far of no-fault premium
charges.
you.
Campbell, 32, is a Yale graduate, and has worked previously for the Wash-
But there is considerable confusion
ington Star and in London for United Press International. He has been with
and resentment over the whole corrept
the Boston Evening Globe since 1968.
of no-fault: that it is your company,
regardless of who is at fault, which has
By KENNETH D. CAMPBELL
-The minimum cost of compulsory
to pay for your injuries.
bodily injury insurance ($5,000-
An opinion poll of 502 Massachusetts
BOSTON, Mass.-"The new no-fault
$10,000) and $5,000 property damage
no-fault accident victims-a poll which
plan has worked better than anyone
insurance (compulsory beginning this
the American Trial Lawyers Assn. head-
ever expected."
year) has dropped from $117 plus
quartered in Boston at first admitted
That assessment by Massachusetts
$67.00 in 1970 in central Boston to
and then denied sponsoring-found that
Insurance Comr. John G. Ryan is
$74.00 and $21.00 in 1972, a drop from
62 percent of 502 accident victims felt
widely supported by Massachusetts' 2.5
$184.00 to $95.00.
the no-fault system was unfair. The
million motorists after one year's ex-
-Overall, the drop in no-fault pre-
poll, by the Opinion Research Corp.,
perience under the limited no-fault sys-
miums has meant a cut of 10 percent
of Princeton, N. J. (a rival of the
tem of bodily injury insurance. So suc-
for most motorists, Ryan estimates.
Gallup organization), described an ac-
cessful is it that the Legislature voted
cident in which another car going in
overwhelmingly last Fall to go to no-
$35 Million Rebate Asked
the opposite direction "crosses into your
fault system for property damage and
lane and crashes into your car and you
collision insurance. The second no-fault
-Insurance Comr. Ryan has ordered
are injured."
system began Jan. 1, 1972.
the companies to rebate $35 million in
Sixty-two percent said "unfair" when
Insurance rates, regulated and set by
excess premiums paid in 1971, an aver-
asked whether they thought it was fair
the state, dropped 15 per cent upon the
age rebate of 27.6 percent. The com-
or unfair that under Massachusetts law,
introduction of bodily injury no-fault
panies are challenging this in court on
"ordinarily neither the other driver nor
in January, 1971. They dropped an-
the legal basis that it is after-the-fact
his insurance company would have to
other 27.6 percent as of January, 1972
rate setting.
pay for any of your losses" up to a
-42 percent!
-Information on court case back-
maximum of $2,000. Of the 502 per-
A systematic pattern of exaggerated
logs is still sketchy, but the Suffolk
sons surveyed, however, 34 percent
if not fraudulent claims against insur-
County Superior Court in Boston re-
didn't file a claim under the new sys-
ance companies appears to have been
ports that the average number of motor
tem; 28 percent had had claims paid
significantly curbed by the law. Under
vehicle suits begun there has dropped
and were satisfied (thereby making 62%
the old system, the companies' poor
about 15 percent since the beginning
who had been satisfied or hadn't filed
administration and slow payment of
of no-fault insurance in January 1971,
a claim); 25 percent filed but had not
property damage and collision claims
even though those statistics include
yet settled on cases that were four to 11
encouraged the filing of small nuisance
cases that may be as much as two years
months old; 11 percent had settled and
suits for personal injury. The suit usu-
old.
were not satisfied; and two percent had
ally was followed by a quick settlement
The good news is tempered by the
settled but were uncertain whether they
of the property damage or collision
overall increase in the costs of repairing
were satisfied.
claim, plus a little extra for the per-
cars and people, which forced substan-
sonal injury claim. One-third of the
tial increases in 1970 and 1971 in prop-
Court Upholds It
payment was customarily deducted for
erty damage and collision insurance
the lawyer.
costs.
The Massachusetts Supreme Judicial
A new no-fault property damage law,
Court decided last June 30 that the law
Injuries, Accidents "Decrease"
which took effect on Jan. 1, 1972,
was fair and constitutional because it
however, has resulted in rate cuts for
exchanged one right for another. It
What has happened in one year of no-
about nine-tenths of the motorists.
ruled that it was within the legislative
fault?
However, it would constitute a loss
power to make such a law in the gen-
-The number of personal injuries
for persons of very low income, whose
eral interest because of the social prob-
reported to the Registry of Motor Ve-
taxes may amount only to the 5.2 per-
lems arising out of delayed claims pay-
hicles has dropped about 39 percent
cent taken out of paychecks for Social
ment and the clogging of the courts.
even though the number of accidents
Security taxes.
The Massachusetts law is quite different
reported has dropped only about 10
The final figures on the first year of
from the Illinois no-fault law which
percent. The number of reported in-
no-fault bodily injury insurance in
was declared unconstitutional there.
juries dropped about 58,000 and there
Massachusetts won't be available until
Lawyers who specialized in insurance
were 16,000 fewer reportable accidents
sometime in March or April, when
cases and formerly collected a standard
involving injury or a minimum of $200
Ryan intends to hold a further hearing
one-third of the jury award or insurance
damage.
to determine how much of a rebate is
company settlement have continued to
-Premiums for bodily injury insur-
due motorists for 1971.
oppose the law in statements, partly be-
ance have dropped 42 percent instead
He is basing his legal right to do this
cause of legal principles and partly be-
of being increased by 30 percent, as had
on the grounds that the 1972 rates are
cause of self-interest.
been predicted for the 1971 rates be-
being set on a two year basis, 1971
The Massachusetts "Personal Injury
fore the passage of no-fault.
and 1972. Whether the courts will allow
Protection" law is really a limited no-
-The number of bodily injury in-
this concept is by no means certain, but
fault system, barring suits for "pain and
surance claims has dropped by 13,000-
Ryan--a lawyer who formerly was the
suffering" except in some instances,
48 per cent-in the first nine months
highly-respected legislative lobbyist for
and requiring you to claim against your
of 1971, the latest available statistics.
the independent insurance agents-
own insurance company.
-The average cost of a paid claim
thinks it's worth a try.
When passed, it was anticipated that
has dropped from $419 to $165, a cut
Ryan, in an interview, said he ex-
the law would bar law suits in about
of 61 percent in those first nine months.
pected eventually that claims would go
80 percent of the accidents. No firm
-The money paid out in claims by
up by about 20 percent over the 1970
figures are yet available on what por-
insurance companies has dropped $9
level once people learned how much
tion of the 1971 accidents were insured
million or 80 percent in the first nine
coverage was provided under no-fault
by the under $2,000 no-fault portion
months, from $11.3 million in January-
bodily injury. "All those people who hit
of Massachusetts' compulsory $5,000
September 1970 to $2.3 million in the
trees and lampposts now can recover
per person, $10,000 per accident bodily
same period in 1971.
from their own insurance companies.
injury insurance. Insurance premiums
are set by the state; there is no price
Final no-fault property damage-col-
Companies Must Pay
competition on required insurance.
lision rates, after determination that
they met the wage-price guidelines, were
The "no deductible" property damage
$2,000 No-Fault Limit
issued Jan, 28.
coverage is available-for $5 to $15
For the average motorist, Ryan said,
extra-only under Option 1 or Option
Under the law, a person is prohibited
the total premium fór all compulsory
2. It requires the companies pay the
from suing unless 1. His medical bills
auto insurance was about 10 percent
full cost of damage to your car in cases
are over $500; or 2. His wage losses
less than he paid in 1971. Since the
where you clearly are not at fault. It
and medical bills are over $2,000; or
bodily injury portion dropped an aver-
specifically limits those cases to the Op-
3. If the injury caused a broken bone,
age of 27.6 percent, there was an in-
tion 2 circumstances of being hit while
or loss of a limb or sight or hearing.
crease averaging 3.5% to 11% in
you are legally parked, or in the rear-
or disfiguration, or death.
property damage and collision. But
end, or by a driver who is convicted
The reason it passed was that in
the increase there was less than it
later of speeding, driving while under
1970, Massachusetts bodily injury in-
would have been under the old system
the influence of alcohol or drugs, or
surance premiums were among the
for 90 percent of the motorists, Ryan
driving the wrong way on a one-way
highest in the nation even though they
said. For the 10% facing increases, the
street. The motorist still has to have a
had been frozen by the Legislature for
top range of the hike for late-model
deductible ($50 or $100) for the other
three years. The jump in rates was
Cadillacs and similar cars was limited
collision coverage.
threatening to be 30 percent. Many
to 20%.
For the motorist living in the middle-
claimants for property damage found
For a typical motorist living in
class Boston residential area of Dor-
they had to file. a. personal injury suit
Boston, his compulsory insurance cost
chester Lower Mills, this is the way
before they could collect on the prop-
could range from $95 to $502. The
the rates looked for standard Chevvies,
erty damage claim. Auto insurance re-
difference depended on the value of his
Fords, Plymouths, Dodges, Pontiacs,
form was an urgent political issue.
car and how much insurance he telt he
Mercurys, Buick Skylarks.
The mandatory 15 percent cut in
ought to buy.
(Not included are high performance
premiums made the 1970 legal reform
One of the principal complaints about
Buicks, Mercurys, Oldsmobiles, Pon-
politically palatable. The public, the
no-fault property damage was answered
tiacs, and Thunderbirds, Cadillacs, Im-
insurance companies, the politicians,
by Ryan after four weeks of complaints
perials, Corvettes, Lincolns and Mer-
and some lawyers-everyone but the
by motorists having to pay for the first
cedes-Benz, nor Ford Pinto and dis-
trial lawyers association-seemed to
$50 or $100 damage even if it was no
continued small cars, nor the small
want to end the old auto insurance
fault of their own-their car was hit
Chevvies, Fords, Plymouths, Dodges,
system.
while it was legally parked and they
American Motors, Mercurys, Datsuns,
A year later, Massachusetts passed a
were sitting inside their house at the
Toyotas, and VW sedans.)
second no-fault plan for collision and
dinner table.
property damage insurance almost with-
After negotiating with the companies,
Bodily Injury Option
out opposition because of the success
Ryan issued rates providing full cover-
($50 deductible collision, no
of the first no-fault law and the provi-
age without a deductible in such in-
deductible property damage)
sion that payments in many cases would
stances. The cost adds $5 to $15 in
A 1972 car-$74 & $295
have to be made within 15 days of sub-
Boston, the highest rated territory.
mission of a claim. It promised modest
($247 with $100 deductible col-
savings for 2 to 4 year old cars, and
lision)
Can Prevent Suits
A 1970-71 car-$74 & $238
vast savings for old cars. The House
chairman of the insurance committee,
No-fault property damage insurance
($201 with $100 deductible col-
Rep. Edward J. Dever, said that bodily
has three basic options. All three bar
lision)
A 1968-69 car-$74 & $213
injury no-fault had deprived motorists
you from suing or being sued.
of the bodily injury lawsuit weapon to
Option 3 is the minimal compulsory
($181 with $100 deductible col-
lision)
compel settlement of old property dam-
coverage, costing about 30 percent of
A 1967 or earlier car-$74 & $189
age claims, even if the claimed injury
the would-be property damage rate-
was fraudulent or exaggerated.
that is, the rate that would be changed
($162 with $100 deductible col-
The most controversial portion of the
in 1972 under a fault system. It pro-
lision)
1971 bodily injury law was the pro-
vides no coverage for your own car,
Option 2 coverages for those cars
vision that persons could claim-up to
but bars others from suing you. It pro-
ranged from $68 to $78, meaning a
the $2,000 total loss limit-only 75
vides $5,000 property damage liability
motorist could have some collision pro-
percent of their lost wages.
insurance if you are sued by someone
tection and property damage without
This section was enacted on the basis
not covered by no-fault-an out of
suit for a total of about $150 (the
that Social Security and income taxes
state motorist or a self-insured vehicle,
bodily injury premium of $74 plus the
eat up 25 percent of most people's
such as buses or rapid transit vehicles.
option two premium).
wages anyway, so that 75 percent tax-
Ryan, who has Option 2 collision
For Massachusetts, a state with re-
free payments did not constitute any
insurance on his 1965 Plymouth, rec-
portedly the most lawyers per person
loss.
ommends Option 3 be considered by
and with drivers that the State Secre-
the 53% of the state's drivers whose
tary of Public Safety describes as the
250,000 Possible Rates
cars are 5 years old or older.
worst in the nation, no-fault has taken
Option 2 provides limited collision
some of the pain and suffering out of
The principal problem with no-fault
coverage and guarantees payment within
auto insurance.
property damage insurance was the pub-
15 days of submission of claims in
lic's understandable failure to grasp
cases where 1. Your car is hit, while
what was involved in an insurance
legally parked, by a car whose owner
system that has no less than 250,000
can be identified; 2. Your car is hit in
possible premiums covering the three
the rear end by an identifiable car;
YOU.
possible types of car repair and property
3. Your car is hit in a collision in
damage insurance
which the other driver subsequently is
The Massachusetts insurance system
convicted of (a) operating under the
is broken down into 12 classes of driv-
influence of alcohol or drugs; (b) driv-
ADDITIONAL COPIES OF THIS
ZIP
ers, 70 percent of which fall into the
ing the wrong way on a one-way street;
class 10 category of motorists who
(c) speeding. In other collision cases,
commute less than 10 miles to work
Option 2 introduces the concept of
and have no drivers under 26 years old
comparative negligence. In a two-car
in their family.
collision at an intersection for example,
There are seven categories and four
if the insurance companies (not the
age-groupings of cars, based on the
courts) determine you are 50 percent
actual cash value of everything from a
at fault and the other driver is 50 per-
Corvair over five years old to a brand
cent at fault, each insurance company
new Cadillac or Mercedes. There are
93 collision rating territories based on
than the claim. The Option 2 premium
the accident experience of the cars
is the rate for Option 3 plus 35 percent
garaged there. There are four different
of what the 1972 collision rate would
combinations of collision coverage and
be under a fault system.
deductibles ($50 or $100), and two
The Option 1, full collision coverage,
ARTICLE ON "NO AT 25¢ EACH (5 FOR $1).
make all checks payable to:
different further combinations of the
premium is the rate for Option 3 plus
USE THIS COUPON TO ORDER ADDITIONAL COPIES
STATE
pays policy holders 50 percent less
Use This Today! Communications Distribution, Inc.
collision coverage with the property
135 percent of what the 1972 collision
damage.
rate would be under a fault system.
Communications Distribution, Inc.
Room 830 150 East 35 Street
I ENCLOSE PAYMENT OF $
In addition, there are 12 classes of
Option 1, like the old-style collision, is
New York, N. Y. 10016
PLEASE SEND ME
drivers and 15 property damage terri-
the only coverage that protects against
ADDRESS
CITY
tories involved in the residual "Option
hit-and-run drivers smashing into your
3" coverage for property damage.
car.
Insurance
The current "fault" insurance policy reimbursing accident victims
has the following difficulties:
1) Slow payment. The average victim has to wait more than
a year for a liability insurance payment.
2) Unpaid victims. A report in the area of insurance found
that the fault insurance system denies compensation to
many victims. One out of every four people involved in
an automobile accident collects absolutely nothing from
the system.
3) Overpayment of small claims. DOT has made a study indi-
cating that three out of four claimants with economic
losses under $200 got more than double their economic
loss through the fault system.
4) Underpayment of large claims. Victims with large medical
costs and wage losses have been found not to recover from
the fault insurance system the full amount of their losses.
5) Waste. Over half of the money paid into the system goes
to overhead expenses and the already cited misallocations.
Specifically, 56¢ of each premium dollar is kept by the
insurance companies, insurance agents, insurance adjusters,
plaintiff, lawyers and defense lawyers who operate the
system. Of the 44¢ that go to victims as a class, 21½/2¢
go for other than economic loss, typically in overpayment
of small claims. Another 8¢ go to pay over again economic
losses that have already been compensated from other in-
surance sources, such as health insurance. That leaves
only 14½½ out of the premium dollar to pay for the net
economic losses of the victims of automobile accidents.
6) Duplication of other insurance. The defects in the present
system are fundamental and the key to real improvement is
fundamental change. The essence of the fundamental change
should relate to changing: 1) the discarding of case-by-
case determinations of legal fault as the prerequisite to
payment; 2) the replacement of vague and indeterminate
measures of damages with clear and objective measures of
compensation; and 3) the elimination of the conflict of
purpose between accident law and accident liability in-
surance.
-2-
The opponents of no-fault insurance state that drunk drivers and
negligent drivers will not be made responsible. But this does
not have to be the case as such drivers would be:
Subject to disfigurement, disability, and death if in-
volved in an accident;
Subject to disgrace and pangs of conscience if morally
wrong in causing theaccident;
Subject to fines and jail terms for traffic violations;
and Rated as a bad risk and charged more for auto insurance
after traffic convictions or accidents.
An additional criticism to no-fault insurance is that it will eliminate
tort liability, but persons guilty of wrongful conduct can be made
accountable under the penal code.
"Nó Fault" Would Cost Less, Pay More
A Solution to the Auto Insurance Mess
The American consumer is restive and there are
causes financial hardship and impedes rehabilitation.
many good reasons why.
The average victim has to wait more than a year for a
One of the reasons can be traced to what has been
liability insurance payment - forty times as long as it
required, and not required, of private business by gov-
benefits to automobile accident victims, a slowness that
ernment regulatory bodies.
takes him to collect on accident and health insurance.
For too long a time, government regulation of
The victim who has to sue encounters court delays up
business concerned itself with form and not substance,
to five years in the urban and suburban counties of
this State. The human situation is even worse than
with rules, and not with results. It is part of a spotted
past in which regulators zealously demanded that the
these statistics indicate, for the more serious the vic-
business adhere to a prescribed manner of doing things
tim's loss the longer the delay.
without asking what was really being accomplished. In
(2) Unpaid Victims. The report finds that the
the insurance business, who really cared whether a cer-
fault insurance system denies compensation to many
tain adjuster was agreeing to pay claimants too little or
victims. One out of every four people injured in an
too much? As long as the adjuster filled out all the
automobile accident collects absolutely nothing from
forms properly, the regulator seldom asked questions.
the system.
That is changing. Last fall, when Governor Rock-
The reason is that the law of negligence, which
efeller asked the New York Insurance Department to
governs the right to recover liability insurance bene-
study the present system of compensating victims of
fits, requires the victim to prove that someone else was
automobile accidents and to make recommendations for
exclusively at fault. This means the victim cannot get
improvement, we saw our job as one which should
paid unless he can prove someone else was to blame.
break from what had been the traditional regulatory
Even then, the victim gets nothing if he himself was, to
approach. We decided to measure what auto insur-
the slightest degree, negligent or at fault.
ance was delivering and not delivering, against the
This rule of the fault insurance system - that
standards which society should have for so important
payment turns on proving someone else exclusively at
an institution. In other words, we wanted to see the
fault - has large consequences, not only for the one in
results produced by auto insurance and, if necessary, to
four who is left out entirely, but also for everyone who
find ways to improve these results.
has to deal with the fault insurance system. So let's
look at that rule for a minute.
Now that study has been completed, and it rec-
ommends fundamental changes. Our report is entitled
FAULTS
OF
THE
Of the major lines of per-
"Automobile Insurance
For Whose Benefit?", and
FAULT SYSTEM sonal insurance, auto liabil-
it was submitted to the Governor on February 12, 1970.
ity is the only one that makes you prove some stranger
The report was endorsed strongly by the Governor.
was exclusively at fault before you can collect from
The report and implementing legislation are now sub-
the insurance company. There is no such gauntlet to
jects of legislative hearings being held in different
run in life insurance, health insurance, fire insurance,
theft insurance or even in automobile collision or com-
cities in New York State.
prehensive insurance. Imagine how strange it would
FAILURES OF THE The report examines the na-
seem if the rules of the fault insurance system were
PRESENT SYSTEM ture of the present system
extended to other types of insurance.
of handling the costs of automobile accidents and re-
When you are ill you want your health insurance
views its results. The two main constituents of the
to pay your medical bills without requiring you to
present system are, first, the common law of liability for
prove that your illness was caused by someone who
negligence or fault, and, second, liability insurance.
carelessly sneezed on you on the bus. Nor would you
Hence we have called the present system the fault in-
tolerate a health insurer which sought to duck pay-
surance system. What did we conclude about the re-
ment by claiming you would not have gotten sick if,
sults of the fault insurance system?
right after the sneeze, you had run home and gone
(1) Slow Payment. The Insurance Department's
right to bed.
report finds the present system to be slow in paying
(3) Overpayment of Small Claims. The Insur-
THE AUTHOR
ance Department's report finds that the present fault
Richard E. Stewart is Superintendent of Insur-
insurance system pays the claimant with a small loss
far more than the accident cost him. We are not alone
ance for the State of New York.
in this finding. Preliminary data from the U.S. Depart-
11
ment of Transportation's extensive, current study of
just discussed, misallocated, with too much going to
claim files shows that three out of every four New
small claims and too little going to large claims.
York claimants with economic losses under $200 got
Specifically, the report finds that 56 cents of each
paid more than double their economic loss through
premium dollar are kept by the insurance companies,
the fault insurance system.
insurance agents, insurance adjusters, plaintiff's law-
The overpayment of these small claims, while
yers and defense lawyers who operate the system. Of
called "pain and suffering" by lawyers and insurance
the 44 cents that go to victims as a class, 211/2 cents
men, typically bears no relationship to actual pain or
go for other than economic loss, typically in overpay-
actual suffering. It has a simpler explanation. The
ment of small claims. Another 8 cents go to pay over
standard of liability and the measure of damages in
again economic losses that have already been com-
automobile liability cases are vague and uncertain, leav-
pensated from another insurance source such as health
ing wide latitude for bargaining between the victim or
insurance. That leaves only 141/2 cents out of the pre-
his lawyer and the insurance adjuster. Only one per-
mium dollar to pay for the net economic losses of the
cent of claims is decided by a court; the rest are bar-
victims of automobile accidents.
gained. To an insurance company the typical small
That kind of waste might be tolerable - indeed
claim has a nuisance value. The claim is overpaid to
the facts have been known and tolerated for a long
get rid of it.
time - if auto insurance were cheap. Once it was
cheap. But no longer.
GETTING
LESS
(4)
Underpayment of
Nationally, consumers now pay a yearly auto in-
FOR MORE Large Claims. The Insur-
surance bill of close to $12 billion. Today the average
ance Department report finds that the present system
cost of the auto insurance which New York law com-
deals far less generously with the seriously injured vic-
pels every car owner to buy is $125 per car per year.
tim. When you cut through the rhetoric of the de-
Today the typical car owner, who rightly decides that
fenders of the present system, a rhetoric heavy with
he has to buy more insurance than the law requires if
solicitude for the seriously injured, you confront the
he is to protect himself, pays $250 per car per year for
shocking fact that victims with large medical costs and
automobile insurance.
wage losses do not recover from the fault insurance
With the price of auto insurance high and rising,
system even the full amount of their medical costs and
waste and inefficiency in the auto insurance system are
wage losses.
less tolerable. The Insurance Department report pre-
These findings also have been confirmed by others.
dicts that the waste and inefficiency of the fault in-
The most recent, as well as the most dramatic and best
surance system would be enough to doom the present
documented, finding as to the underpayment of the se-
system someday even if there were nothing else wrong
riously injured is in the voluminous national survey of
with it.
serious injury cases released this spring by the U.S. De-
(6) Duplication of Other Insurance. The In-
partment of Transportation. That survey found that
surance Department report finds that the premiums
the seriously injured traffic accident victim or his sur-
which consumers pay into the fault insurance system
vivors were compensated, from all sources, for less than
often go to pay duplicate benefits.
half of their actual economic loss; and that auto lia-
bility insurance contributed less than one-third of the
A BAD BUY Many auto accident victims
reparations that were made - or one-sixth of the eco-
IN BENEFITS are entitled to payments
nomic losses of seriously injured victims.
from such sources as health insurance and income con-
tinuation plans. But under the fault insurance system,
The reason for the underpayment of large claims
these other benefits are disregarded in setting the am-
is simple and is the corollary of the reason why the
ount of a liability insurance award.
present system pays too much on small claims. The typ-
In a state like New York, where health insurance
ical large claim is underpaid because the seriously in-
jured victim cannot wait for his money and can be
and wage loss insurance are very widespread and auto
bought out cheaply.
insurance is universal, the result is that a lot of people
are paying duplicate premiums to support duplicate
(5) Waste. As if the failings already mentioned
benefits. But duplicate benefits are a bad buy, because
were not enough to discredit the present fault insurance
every dollar in auto insurance benefits costs $2.25 in
system, the Insurance Department report goes on to
premiums.
trace what the system does with the consumer's pre-
mium dollar.
If a person wants to pay twice, he should be free
to do so. But why should his own government compel
HIGH, HIGH Over half of the money
him? No one is saying it is not nice to get double ben-
OVERHEAD paid into the system goes to
efits. The point here is that it isn't free. Premiums are
the overhead expenses of the system. And a very large
not so low, nor people so rich, that the law should
proportion of what gets through the machinery is, as I
make anyone pay more than once for protection.
12
(7) Traffic Safety. Last year the automobile
The present fault insurance system is based on
killed 56,000 Americans. That is more American
the common law of negligence or fault. The law holds
deaths in one year than in the Vietnam war since its
that a person who has suffered a loss can recover dam-
beginning. Last year the automobile injured 4.6 mil-
ages from another person only if he can prove that
lion other Americans. That is four times the number
that other person was exclusively at fault and can fur-
of Americans wounded in all of World War II.
ther prove that the faulty act was the cause of the loss:
Against that gory background, some defenders of
The legal rules, which antedate the invention of
the fault insurance system still insist that the present
the automobile, were not designed to compensate acci-
system somehow deters unsafe driving. That is non-
dent victims. They were designed to make wrongdoers
sense. The Insurance Department's report points out
pay for what they did.
that under the present system the standard of legal
The purpose of the legal rules has been undercut
fault is vague; determinations of fault are made long
by the development of liability insurance, which every
after the event; the extent of liability is in no way
car registered or driven in this State has to carry.
proportional to the degree of carelessness; the liability
Liability insurance is designed to do nothing more
is not just of the driver but of the vehicle owner
than reimburse wrongdoers for what they might have
whether or not he was driving; and, most important,
to pay for negligently causing damage to another. If
the liability is insured against.
the law of negligence is designed to make sure wrong-
Automobile liability insurance is compulsory in
doers pay, liability insurance is designed to make sure
this State. The wrongdoer, assuming there is one in an
wrongdoers never pay. In this conflict, liability insur-
accident and his fault can be proved, does not pay.
ance has prevailed. It has rescued the wrongdoer. It
The insurance company pays. Through premiums, we
assures that any cost which the law would shift to a
all pay.
wrongdoer shall be immediately lifted from him.
What is the cause of all the defects that have been
mentioned? What kind of change is necessary to get
But if liability insurance has undercut the law of
at those defects?
negligence as far as it concerns making wrongdoers
pay, the law of negligence has prevailed in determin-
WHY PRESENT
The Insurance Department
ing which victims shall be paid. The law of negligence
SYSTEM FAILS
reports traces the operating
lets the victim collect from the insurance company only
defects in the present system to the system's most fun-
if the victim can prove that the insured was exclusively
damental principles and to an irreconcilable conflict
at fault.
between those principles.
It is no wonder that such a system fails both the
accident victim and the insurance consumer, and it is
THE INSURANCE
of the utmost significance that the failures of the pres-
sent system are traceable to its most fundamental prin-
PREMIUM DOLLAR
ciples.
Over the years, New York
A NEED FOR
and other states have re-
BASIC CHANGE
Doctor Bills
peatedly tried to patch up
one or another of the defects in the fault insurance
And
system without challenging its fundamentals. An im-
Work Loss
portant finding of the Insurance Department's report
Ins. Companies
14.5°
is that such steps will not in the future yield useful
and Agents
results. After analyzing such palliatives as small claim
arbitration and comparative negligence, the report con-
Pain and
33°
cludes that "further attempts to modernize the fault
Suffering
insurance system by tinkering with it, while leaving its
essentials intact, are sure to be expensive and self-
21.5°
defeating."
The defects in the present system are indeed fun-
8c
Lawyers and
damental. The key to real improvement is fundamen-
Double
tal change. The essence of sound, fundamental change
Claim Investigators
has to be (1) the discarding of case-by-case determina-
Coverage
23°
tions of legal fault as the prerequisite to payment, (2)
the relacement of vague and indeterminate measures
of damages with clear and objective measures of com-
pensation, and (3) the elimination of the conflict of
13
purpose between accident law and accident liability
tain objective though non-cconomic consequences of
insurance.
an accident, such as dismemberment or loss of function.
A proposal for fundamental change would abol-
While I have confined this discussion to compul-
ish negligence law claims and lawsuits based on the
sory insurance, it is useful to keep in mind that con-
operation of motor vehicles in this State. It would rc-
sumers would remain free to buy additional coverage
quire that every vehicle owner carry insurance to pro-
if they wished. Four out of every five people injured
tect the occupants of his vehicle and pedestrians hit by
in an automobile are members of the car owner's fam-
his vehicle. Insurance benefits would be payable with-
ily. Under the proposal, the car owner would be buy-
out requiring the claimant to prove that anyone else
ing insurance largely to protect himself, his family and
was at fault. The compulsory insurance would pay full
his car. He would be in the best position to decide
compensation to all victims for net economic loss re-
what he needed and what he could afford and he
sulting from personal injury, such as medical expenses
could afford more under our proposal thon he can un-
and income loss, or resulting from damage to property
der the present system.
other than automobiles.
PREMIUMS WOULD The proposal would re-
The proposed compulsory insurance would pay
COST LESS duce premiums substan-
considerably more in cases of serious injury than does
tially, both as to compulsory coverages and as to the
the present one. It would pay faster, with less haggl-
combination of compulsory and optional coverages
ing, and its benefits would be paid periodically rather
which the typical motorist might be expected to buy.
than in a lump sum - all qualities that would help
The consumer would see less of his premium dollar
the victim get the money and the care he needs when
eaten up by the operating expenses of the system. He
he needs them.
would see a fairer share of his premium dollar going
It is useful to note that while the proposed com-
to pay for net economic loss - 57 cents as against
pulsory insurance would provide generous benefits, it
141/2 cents today.
would compensate only for economic loss and only for
that economic loss not already compensated by some
The Insurance Department's actuaries estimate
other, more efficient kind of insurance. The reason is
that the proposed compulsory insurance should cost
the average consumer about 56 percent less than com-
simple. We are talking about compulsory insurance,
pulsory automobile insurance costs him today. For the
about the coverage that everyone is required by law to
typical driver who buys additional coverage today on
pay premiums for. In our judgment, government
an optional basis, comparable coverage under the pro-
should exercise that kind of compulsion on its citizens
posal should cost 33 percent less.
with restraint.
The proposed change in auto insurance would
INSURANCE FOR Of course, the Legislature
have no effect on the rates charged for health insur-
YOURSELF would always be free to
ance, disability income insurance or any other coverage
change the level or types of benefits provided by the
which would be primary to auto insurance. Those in-
proposed compulsory insurance. For the proposal
surances pay auto accident victims today and they
would set up an insurance system that would be amen-
would continue to do SO under our proposal. The dif-
able to rational decisions by the makers of public pol-
ference is that our proposal would eliminate duplicate
icy as to the best balance of costs and benefits. The
payments, which is one reason it would bring auto in-
changes from fault law to compensation, from vague-
surance premiums down.
ness to precision in measures of awards, from insur-
ance for strangers to insurance for yourself, from
Our report also discussed highway safety. It
waste to efficiency, from complexity to simplicity - all
found that the fault insurance system protects careless
drivers better than accident victims. It does not and
are basic to real reform. But, the level of benefits and
the consequent level of premiums within a reformed
cannot deter unsafe driving or otherwise promote
system are not basic, and would be proper subjects of
highway safety. By contrast, the proposal would rein-
force highway safety efforts in several ways. It would
continuing legislative review.
For example, while we have recommended that a
permit the accident compensation system to yield
reformed system provide unlimited compensation for
undistorted data for use in systematic approaches to
net economic loss, the Legislature might reasonably
highway safety. It would impose special cost burdens
decide to set limits on that compensation in order to
on drunken driving and would give commercial vehicle
hold down premiums for the compulsory insurance.
owners an economic incentive to improve driving con-
In the other direction, while we have recommended
ditions for, and to promote safe driving by, their em-
that compulsory insurance under a reformed system
ployees.
cover only net economic loss, the Legislature might
ENCOURAGING A The proposal should also
reasonably decide it was worth the extra premiums to
SAFER CAR advance traffic safety by
include, in the compulsory coverage, benefits for cer-
enabling insurance premiums to vary as among makes
14
and models of car, according to each car's ability to
protect occupants and to resist damage. Insurance
premiums could then, for the first time, be used to
encourage car makers to make safer cars. That can
only be done if the car owner is insuring his own car,
rather than insuring some car he will run into and
whose make and model obviously cannot be foreseen.
It is ironic that when the State's largest auto insurer,
a vigorous opponent of reforms such as we propose,
recently announced a premium discount for sturdier
automobiles, the insurer proposed the discount only on
collision insurance - a first-party, no-fault coverage
that would be the main insurance for vehicle damage
under our proposal:
Predictably, our proposal has met fierce resistance.
Some people have an immense interest in seeing to it
that the fault insurance system --- the system we have
today - is what we have tomorrow. Let them defend
it for as long as they can. But they cannot defend it
forever.
Tottering institutions out of touch with the needs
of the people they profess to serve, however formid-
able and entrenched, eventually fall. Special interest
can obstruct change for a time. But change will come.
Eventually change always comes. Here at least we have
all had ample warning and a chance to influence what
is bound to happen.
-RICHARD STEWART
15